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1) Lisa's corporation manufactures a product which requires a particular type of plastic driver. Lisa's corporation currently purchases the plastic driver from a supplier at a price of $5 per unit. Lisa's corporation can also produce the plastic driver intemally. In the coming year, the company anticipates a need for 10,000 of such plastic driver. If the company produces the plastic driver internally, it will incur the following costs: Direct labor $2/unit Direct material = $3/unit Variable overhead = $0.75/unit Fixed cost = $140,000 The manufacturing process for the plastic driver would also require a purchase of tooling which is typically used within a year. The cost of such tooling for the 10,000 plastic driver is $30,000 Q: Should Lisa's corporation Buy or Make the plastic driver, and why in terms of calculation"? 2) Victoria's corporation has a factory to make and produce hair straightener. Victoria's corporation usually purchased a special component which is a part of the hair straightener from the market. However, Victoria's corporation is planning to produce the component for itself and the estimated costs of producing 6,000 units of a component are: Per Unit Direct Material $15 Direct Labor 9 Applied Variable Factory Overhead Applied Fixed Factory Overhead 16 $1.5 per direct labor dollar $50 The same component can be purchased from market at a price of $39 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved. 10

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